Nine Keys to Improving Business Success

Business, whether for profit or non profit, is a challenging environment. It can be difficult to

have a clear strategy for success. Here are eight keys that can help any business owner of man-

ager bring order to the strategies and tactics of keeping a venture on a healthy path. Before pro-

ceeding be clear that what follows is not about product or business development. This takes the

view that we are focused on a business with defined lines of products and services and a clear

view of who their markets and customers are. This is about improving the core performance of

an ongoing enterprise.

If you are interested in applying globally recognized improvement strategies, there are sev-

eral models of high performance business that provide a wide range of approaches and tools to

apply to any business or organization. In the US, the two prominent versions of these globally

developed and deployed methodologies are the Criteria for Performance Excellence of the

Baldrige Performance Excellence Program (http://www.nist.gov/baldrige/) and lean enterprise1

Don’t be deceived by the obviousness of what follows. Business is really not that compli-

cated in principle; the difficulty comes in putting the principles into practice every day.

1. Increase the number of prospects

2. Increase contacts with current customers

3. Increase contacts with past customers

4. Improve conversion rate

5. Increase average sale per customer

6. Improve Gross Margin %

7. Control fixed costs

1 There is no official body that governs lean enterprise approaches to high performance. The Lean Enterprise Institute (http://www.lean.org/) is a good starting point to investigate this American fork of the Toyota Production System.

1 (c) Riverside Business Coaching 2011

Riverside Business Coaching Hudson NY 617-312-8550 RiversideBusinessCoach.com

8. Select, develop, and prune your human resources

9. Manage by the numbers – fact-based management drives success

The first seven keys are explicitly built on the template of a standard Profit and Loss State-

ment. The first five focus keys on the top line, gross sales of the business. The sixth, Improve

Gross Margin % focuses your attention on how effectively you convert sales dollars into gross

margin profit. The more you have at this point in the business process, the more you have to pay

for fixed costs and happily the more available for your Net Profit line. Control fixed costs calls

on you to have in place regular disciplined processes to use just as much of your gross margin

dollars as are required to sustain the business and its growth and no more. At this point in your

business processes, every dollar not spent is a dollar more Net Profit.

Since it is literally and absolutely true that your employees are your most valuable resource

key eight, Select, develop, and prune your human resources, focuses attention on the how you

hire the right people, train them effectively, and as required prune out any dead wood. All of

these human resource management practices must be carried out regularly and effectively. Fi-

nally, key nine, Manage by the numbers – fact-based management drives success, brings at-

tention to the importance of a fact-based management system that supports a high-performance

culture and priovides metrics to measure and guide performance improvement projects.

Putting the Five Keys to Top Line Success into Practice

The first five keys drive the top line sales of your business. The first three of these focus on

increasing the number of prospects and customers (current and old) who come to your business

whether in person or virtually (or both). The fourth key, improving the conversion rate, is the

process you use to get the highest ratio of sales from these contacts. This is your sales process.

Finally, the fifth key, improving the average sale per customer, targets methods to increase the

typical sales value of each sales event. This is a combination of your product strategy and your

sales process. When you multiply the number of potential sales events times the conversion rate

times the average sales per event, you come to your gross sales. All five should be addressed

through systematic business processes designed and implemented to provide reliable, repeatable

performance.

Push Marketing versus Value-Centered Marketing and Sales

– The First Three Keys.The first three keys, increase the number of prospects, increase contacts with current cus-

tomers, and increase contacts with past customers, are usually viewed through the lens of tradi-

tional marketing strategies: lead generation, prospect development, and sales. Traditional market-

ing uses the push messaging tools of print, TV, and radio advertising as well as direct mail and

other promotional tactics to push messages to the target audience. There is much still to be rec-

ommended in viewing this process in that fashion.

However, in our current environment, traditional push marketing methods can be enhanced

or entirely replaced by more effective tools of interactive, value-centered marketing. The value-

centered approach focuses on the world as seen by the customer. It obeys the rule that customers

define value2. Value-centered marketing and sales starts from the idea that we need to speak to

customers about the benefits of our products and services. Benefits as seen and articulated by

them, not the company. This value-centered approach is not new. “Value selling” and other vari-

ants on this name have been around as formal selling processes for over thirty years.

But, in the last ten years the Web has forced a shift away from the traditional push marketing

model towards a values-centered approach. The Web has made it mandatory for businesses to en-

gage in a conversation with prospects and customers. If you do not offer real information and

benefits people will simply click away and be gone. If you do not provide modes of two-way

communication, people will not stay with you very long. The oldest tools of value-centered mar-

keting are forums and message boards, support forums, and wikis. More recently social media

(Facebook and Twitter being the most prominent), email newsletters, videos and more have be-

come prominent elements of the values-centered marketing environment. Finally, the age old

2 Customer defined value is a central tenet of all high-performance management systems.

face to face interaction in person, or via video conference, brings the values-centered approach

full circle to the most fundamental moment between company and customer.

To help in thinking about how we might develop a communications strategy, we can replace

the traditional sales funnel3 (left) with an Involvement Funnel (lower left) that suggests engage-

ment patterns with prospects and customers that better fits the interactive dynamics of the Web

world that we are now irrevocably involved in.

Your marketing strategies and sales processes must be

tuned to this spectrum of interactions with prospects and

customers. Each level of involvement requires and deserves

a different mode of communication and content. With the

tools available even the smallest business can now engage

in an ongoing conversation with their prospects and cus-

tomers.

We will not provide any detailed discussion of Web val-

ues-centered strategies here. The topic is too large and any comments here would be so general

as to be useless.

Current and Old CustomersA few words though about your current and old customers. There is a management maxim

that says that the cost of finding a new customer is ten times

that of retaining one you already have. Without any real data

to back this ratio up in detail it is obvious that retaining to-

day's customers has to be a central part of your business

strategy. Similarly, old customers are much easier to bring

back into buying mode than finding new ones who must be

attracted to your products or services and then building the

trust to move them towards a purchase.

3 image borrowed w/o permission from http://www.croan.ie/sales_online.htm

There are many traditional marketing strategies that apply to current and old customers - pre-

ferred customer events, preferred customer services, and so on. Apply these as applies to your

marketplace and products and services.

You need to have well designed and disciplined strategies to maintain communication and

engagement with these customers. Here is where the Web tools really shine. You can easily pro-

vide a stream of engaging new information and reasons for them to interact using email, web-

based newsletters, Facebook, Twitter, discussion forums, and so on. But, this is real work and

you need to pay attention to it and be persistent.

One critical task with old and current customers is to ask them for feedback about your per-

formance. You need to know how they feel you are doing both absolutely and relative to your

competitors. You should not wait for negative comments to find there way into the blogosphere

or online evaluation sites to discover your failings in their eyes. Be proactive. Ask and then make

corrections to eliminate the shortcomings4.

Build Your Customer DatabaseAt every point in your marketing seek out ways to capture contact information and demo-

graphics from your prospects and customers. While always guarding the confidentiality of their

information, and assuring that your customers and prospects are actually opting into communi-

cating with you, be aggressive in seeking this information. Whether in person or on your website,

ask for the information and give good reasons why sharing this will benefit them. Without a

growing well maintained database of information you will be sorely hamstrung to execute every

sales growth strategy.

Key Four - Improving Your Conversion Rate – Your Selling System

Now you have your prospects and customers in hand whether in person, on the phone, or at

your website. What will be the rate of converting these contacts to real sales? How can you im-

4 This customer feedback process can also be applied inside the company wherever one process servces the need of another. The former is the supplier and the latter the customer. Internal company processes can carry out exactly the same sort of customer feedback processes to drive their performance improvements.

prove your conversion rate? Having a defined, well thought out sales process is your only path to

success. There are many sales processes available for you to work with and we will not explore

all of them here. The most important thing for you to do is to develop and improve a formal sell-

ing process that works for your business. If your selling process is not formal (meaning written

down as a series of actionable steps) you can not begin to understand what is happening nor how

to improve it.

There are a few fundamentals that underly almost every sales process that are worthy of note.

First, product or service knowledge, including the knowledge of how your products are applied

in practice is critical. Excepting for the sale of a pure commodity or completely commonplace

item, nothing will send customers scurrying to the door faster than a lack of knowledge on the

part of the sales person. In the age of the Web, product information to a very deep technical level

is easily accessible. It would be a safe assumption that any prospect you encounter will already

have “googled” your product. You and your sales people have to pass this test of credibility. A

corollary to this is the enormous value of saying “I don't know.” in response to a tough question.

This can be very disarming and immediately, counterintuitively perhaps, raise your credibility.

Of course, you need to follow up the first statement with, “But, I will find out.”

Second, active listening. In order to sell you need to have your mouth shut and your brain en-

gaged actively listening to what the prospect is saying and not saying. This is a critical baseline

skill for all sales people.

Third, practice FABing relentlessly. This is easy in principle and becomes easier in practice.

Just remember, customers do not buy Features, they buy Benefits. Features are the technical and

or physical attributes of a product or service. Benefits are the results of using the product or ser-

vice. When you are speaking of Benefits you are much more likely to be speaking in terms that

the customer can relate to immediately and emotionally.

Fourth, once a prospect states an objection, a difficulty with your product or service you are

most of the way to a sale. They have already started to envision using your product. Your job is

to keep that visioning process moving by effectively removing the obstacles to their taking the

purchase step. This is where, down selling, lateral selling and up selling come into play.

Key Six - Improve Gross Margin %

At this point we have concluded the keys to top line improvement. Though we have only

three keys left do not think that this is any indication of the relative weighting that you should

give to each of these keys. The actual condition of your P&L over the last three quarters or last

three years will provide you with some powerful indicators of where to focus the most attention.

Raise PricesImproving your gross margin can first result from raising prices. To take this approach it is

useful to examine where prices come from and what that might mean for raising yours. Broadly

prices are determined in the marketplace. But this is a rather nebulous construct at best. On even

casual observation one is struck by how rare it is that a product or service is really an apple to ap-

ple match. Further, buyers rarely have truly thorough knowledge of the offerings in the market-

place. This then makes pricing derived from the marketplace quite variable.

On the other hand, many businesses reflexively take a cost plus desired profit approach to

pricing. This may be comfortable because the factors determining the price are all know to the

business. But, this is an unfortunate approach for a number of reasons. First, though it may seem

easy to know the costs of producing a product or service the variables involved are quite variable

and at time downright murky. The cost of materials and labor can change abruptly and signifi-

cantly. The underlying overhead cost structure must be accurately understood and distributed

across the products and services even as the mix of the production of these items shifts over time.

Second, because the cost plus approach lacks any market input, this approach may in fact gener-

ate prices that net a loss or be so high as to essentially shut out sales at all.

What is very true is that the value (benefit) of a product or service is absolutely defined by

customers. This leads to an interesting set of questions. First, how do you determine what bundle

of attributes constitute the customer’s valuation. And, second, how do you come to a monetiza-

tion of the valuation.

The most reliable method for understanding why customers value your products or services

as they do is to ask them. Being careful not to depend on very small sample sizes, a survey will

do the trick. But, this is expensive to do, and most businesses rely on more anecdotal approaches.

Pricing based on this approach comes down to some experimentation. First look around and

find some companies that are comparable to you in product/service offerings, level of service and

any other intangibles that apply. See if you can discover their pricing levels. This market research

can help you set a pricing zone.

If you are converting a very high portion of prospects you want to sell to into sales without

much push back on price, you can be sure that your prices are too low. Raise the prices until you

start to experience a higher rejection rate and more push back from the prospects on price. Keep

in mind that you are, in large part, interested in total sales even if this come from a small er num-

ber of customers.

Improve Efficiency and Effectiveness of Producing Products and ServiceThe Cost of Goods (Services) Sold (COGS) line in the P&L is a great source of improved

gross margins. It is beyond the scope of this document to provide more than brief discussion of

the opportunities here. Nevertheless, the tools available to reduce waste and improve quality in

the production processes of products and services are orders of magnitude better developed,

more robust and reliable, and extremely effective compared to those available to tackle any is-

sues in sales and marketing.

If you are producing products, you might look at your lead times, cycle times, scrap rates,

finished quality, on time delivery, and inventories in the form of finished goods, work in process

and raw materials. You should be able to get competitive data about order led times and invento-

ries (usually in the form of inventory turns ratios) from industry averages for your sector. Or,

consider the feedback you are getting from your customers concerning lead times, quality, and on

time delivery. If you discover that you are higher than average you immediately know that your

production processes are not up to par. On the other hand, don't be lulled to sleep by competitive

or industry benchmarks. Truly world class manufacturing operations measure lead times in days,

inventory turns over 100, on time delivery exceeding 99% to original promise dates, and finished

quality over 99.5%.

If you are producing services, you can take a similar approach to finding opportunities to re-

duce waste and improve quality at the same time.

Key Seven – Control Fixed Costs

Monitoring and controlling your fixed costs is an important component of every business

success program. Fixed costs are sometimes viewed as a zero sum game for a company. This is

not a good approach because the fixed costs of an organization are the basic infrastructure that

supports the ongoing business processes and feeds the needs of the future through product, ser-

vices, and market development. Fixed costs also support the development of the human re-

sources of the organization.

Having noted that, a regular review and tight budgetary control over fixed costs is essential.

It is very common for fixed costs to disproportionally accelerate during surges of top line rev-

enue growth. This is only good if it is part of a strategic investment of resources in the future of

the company.

The path to controlling fixed costs is to conduct regular management reviews of actual ex-

penditures compared to budgeted expenditures. Attention can then be paid to variances, plus or

minus, between actuals and budget. This approach is both simple and maintains focus on what is

actually happening in the fixed cost portions of the business.

Although many advise that every externally sourced fixed cost should be subject to rigorous

competitive bidding to drive down costs, this strategy must be viewed carefully from a manage-

ment resources point of view. Taking valuable company personnel time, especially in the smaller

enterprise, to chase around after small incremental savings may not be wise. If you can identify a

significant rea for savings this approach makes sense. Otherwise, management time is probably

better spent making the operations of business processes more responsive and effective in sup-

port of the overall enterprise.

Key Eight – Select, Develop, and Prune Your Human Resources

No asset of a business is more key to business success than your employees. A business with

tremendous financial resources, the latest and greatest products and services, and even good

gross margins and fixed cost structures will ultimately fail without engaged, well trained human

resources.

Developing and sustaining a rigorous and robust set of human resources management pro-

cesses is at the center of implementing this business strategy. Without delving into issues of com-

pensation, benefits, and the various required compliance issues, three people management prac-

tices are critical to success.

First, whether hiring from outside or promoting from within, the employee selection process

is an obvious starting point. Instead of the typical job description approach, high performance or-

ganizations focus on results. What are the results that this job is required to produce? In selecting

new hires or promotions, the first step is to look for demonstrated ability to produce the results

required. Whatever academic or professional background may be present matters not a lot with-

out an examination of the person's past performance and the results they generated. By results we

mean the data that shows performance to customer expectations whether the customer is internal

or external.

Second, management must take real responsibility for the development of every employee.

A robust program of employee training including multi-skilling is an essential component of em-

ployee development. With the ready availability of digital images and video it is easier than ev-

ery to document work processes and provide mechanisms for continuous updates. All of this ma-

terial can be kept as a digital loibrary and be readily available to every employee to learn new job

skills. This development work insures that employees are well trained for their jobs and trained

for more jobs so that they Early reviews of new hires and promotions as well as regular reviews

of everyone else needs to focus on each person's performance in producing the results required.

When there are shortcomings in a person's performance, management must first confirm that all

of the training, tools, and resources required are readily available to employees. Management can

not criticize employee performance if any of these three elements is missing or not adequately

supplied.

Third, pruning is good for gardens and just as good for companies. The most immediate time

for pruning comes within a brief time after a new hire or promotion. Despite the best efforts and

a sound hiring process this is one of the least reliable business processes. Many claim that

roughly 50% of all hires and promotions are unsuccessful5. This means that it is imperative that

new hire and promotion performance be reviewed quickly. Varying with the cycle time for a par-

ticular job to produce results, a review might be conducted within a few weeks or months. If the

performance is falling short of required results, the manager must examine how well he or she

has done the fundamental job of providing the employee with support in training, tools, and other

resources so that the employee can be successful. Whatever failings should be repaired immedi-

ately. Meanwhile, short term performance improvement objectives should be mutually set. An-

other performance review should follow as soon as the cycle time of the job permits. If at that

point the performance is not where it needs to be, the person should be moved to a more appro-

priate job or terminated. Failure does not beget improvement, just more failure. Management

must face up to their responsibilities to the employee and the organization and let matters linger.

Key Nine – Manage the Business by the Numbers – Fact-based Man-agement Drives Success

Every high performance management system is built on a fact-based approach. Facts are

mostly numbers. Facts are wonderful as tools for managing the performance of the organization.

Facts liberate the organization, and enable critical thinking and energize team-centered work.

5 I have searched for studies of this phenomenon without success. Nevertheless, folk wisdom over a long period of time and my own experiences suggest that there is a significant failure rate in hires and promotions.

Facts belong to everyone in the organization not just top management. Facts lead to root cause

analysis6, waste elimination and improved performance. Facts are about the results generated by

people and the organization, they are not about personalities or politics.

The first eight keys point to important portions of every company's performance. Looking at

these in your company can easily determine where to focus your attention. Where are the areas

that will generate the best results for the company. Having selected a few critical improvement

areas, you can set up performance objectives that can be expressed in numeric values. It is im-

portant that these metrics be actionable. This means that the metric directly refers to actions that

will drive improvement. For example, on time delivery performance is not an actionable metric.

You need to know what part of the production process is failing in order to improve on time de-

livery. Once that is determined those responsible can focus on improving that metric which, pro-

vided you have done good root cause problem analysis, will drive improved on time delivery

performance. For example, if there is a production bottleneck, say in packaging, improving the

throughput in packaging will improve on time delivery (provided that the rest of the down stream

processes in shipping for instance have adequate capacity).

6 Root cause analysis is a fundamental tool of all improvement programs. It intends to uncover the cause of failure that is fundamental so that a correction made to that error source will eliminate the problem completely.